Chapter 1 Flashcards
What is the main goal of a multinational corporation (MNC)?
To maximize shareholder wealth
What is an agency problem in the context of MNCs?
It arises when managers prioritize their own interests over those of shareholders
Why do MNCs experience greater agency problems than domestic firms?
Because managers of foreign subsidiaries might prioritize their subsidiaries’ goals over those of the entire MNC
What are some ways MNCs can address agency problems with foreign subsidiaries?
By providing proper incentives and maintaining consistent communication from the parent company
What does the theory of comparative advantage suggest about international trade?
Each country should specialize in producing goods where it has a comparative advantage and rely on other countries for other needs
What does the imperfect markets theory explain?
It suggests that factors of production are immobile in imperfect markets, encouraging countries to specialize based on available resources
What is the product cycle theory in international business?
It proposes that firms expand to foreign markets after establishing themselves domestically and then specialize abroad
What are the common methods firms use to conduct international business?
International trade, licensing, franchising, joint ventures, acquisitions of foreign firms, and formation of foreign subsidiaries
Which international business methods require less capital investment but share profits with other parties?
Licensing and franchising
How does the acquisition of foreign firms differ from licensing or franchising?
Acquisitions require more capital investment but offer the potential for larger returns
What factors favorably affect the valuation of an MNC?
Increased foreign cash inflows, stronger foreign currencies, and a lower required rate of return
What factors can adversely affect the valuation of an MNC?
Decreased foreign cash inflows, weaker foreign currencies, and a higher required rate of return
